US wholesale prices drop 0.3% on energy, Iran risk looms
Falling U.S. wholesale inflation gives the Federal Reserve breathing room on interest rates, but a new blockade in the Strait of Hormuz threatens to quickly erase those gains.
U.S. wholesale prices fell 0.3% in June, the largest decline since April 2025, reversing a 0.6% increase in May. The drop was driven primarily by a 12% plunge in gasoline prices, which also helped pull consumer prices down 0.4% for the month, the steepest four-year drop. Food prices also dipped in June, further easing the headline producer price figure.
On an annual basis, wholesale inflation decelerated to 5.5% from 6%, while consumer prices cooled to 3.5% from 4.2%. Core wholesale prices, which exclude volatile food and energy costs, rose 4.7% from a year earlier and 0.2% from May. While significantly above the central bank's 2% target, the broadly cooler-than-expected figures reduce immediate pressure on the Federal Reserve to raise interest rates this year.
Speaking to Congress on Tuesday, Fed Chair Kevin Warsh reiterated the central bank's strict stance. Warsh said the central bank has “no tolerance for persistently elevated inflation,” in his first congressional appearance since taking office on May 22. Investors watch the producer price index closely because components like healthcare and financial services feed directly into the Fed’s preferred inflation metric, the personal consumption expenditures index.
However, the inflation relief may be short-lived. Energy markets have tightened since President Donald Trump announced a new blockade of the Strait of Hormuz on Monday. The waterway handles a fifth of the world's oil and natural gas. Despite the monthly plunge in June, gasoline prices remain nearly 43% higher than they were in June 2025 due to the conflict with Iran.
“There’s no near-term pressure on the Fed, but oil is in the driver’s seat over the longer term,” said David Russell, global head of market strategy at TradeStation. “Energy saved the day in June, but that might become ancient history if the Strait of Hormuz doesn’t open soon.”
The standoff carries significant political and economic weight. The Strait of Hormuz blockade represents a severe supply shock that threatens to reverse the monthly cooling seen in the June data. Persistent frustration over the high cost of living is already weighing on the Republican Party's prospects in the November midterm elections, adding domestic pressure to the geopolitical crisis.
